If You’re Going Through Hell, Keep Going: Nonlinear Effects of Financial Liberalization in Transition Economies

Christopher Hartwell

Emerging Markets Finance and Trade, 2017, vol. 53, issue 2, 250-275

Abstract: Did increasing the level and pace of financial liberalization during transition expose countries to crises? And if a crisis did strike, did liberalization do more harm or good? Using a database of 28 transition economies over 22 years, this article examines these questions across a host of economic outcomes, including savings and the size of the private sector. The results provide evidence that, while liberalization may initially increase the probability of a crisis, the prospect of a crisis drops dramatically at higher levels of financial openness. Moreover, the benefits of liberalization across several metrics outweigh the risks of these intermediate stages.

Date: 2017
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DOI: 10.1080/1540496X.2016.1180284

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